Peru's Congress raised taxes and royalties on the lucrative mining sector on Thursday, handing a legislative victory to leftist President Ollanta Humala after he campaigned on promises to ramp up welfare spending.
Humala, a former army officer, has said more must be done to fight poverty that still affects a third of Peruvians even though the Andean country's economy has surged for the last decade and is expected to grow 6 percent this year.
The new sources of revenue, which will fluctuate depending on the profit margins of mining companies, are expected to generate an addition $1 billion in income for the government each year at current metals prices.
The government said the sector's total tax burden would rise to 42.7 percent from 38.5 percent as a result of the new laws. Mining companies cautioned that any further increase in taxes would hurt the sector's global competitiveness.
Peru, a top global producer of precious and base metals, expects $42 billion in mining investments over the next decade.
Mining drives about 60 percent of exports and is vital to the economy.
With the passage of the bills, miners will now pay royalties of between 1 percent and 12 percent of their operating profits. They currently pay 1 percent to 3 percent of sales.
Those companies will also pay a windfall profits tax of 2 percent to 8.4 percent of their net profits.
Meanwhile, mining companies protected by tax stability agreements signed with the government in the 1990s will be charged a special contribution of between 4 percent and 13.12 percent of their operating profits.
The levies have sliding scales based on operating profit margins and net profit margins. The sliding scales are designed to give companies a break in bad years and take a slice of surging profits in years like this one, when prices are high.
Some companies in the vast mining sector initially opposed calls for higher taxes but then started to negotiate when polls showed there was widespread support for having them pay more.
The head of Peru's mining association ultimately expressed support for how the royalties and taxes were designed.